Article 20: Indian Students’ Scholarships Exempt From Australian Tax

(AUSTRALIA) Indian students in Australia are being told to pay close attention to the tax treatment of scholarships, research stipends, and training allowances as the new academic and financial cycles overlap, with advisers pointing to Article 20 of the India–Australia DTAA as the key shield against double taxation. The treaty clause, signed into law with the broader agreement on 25 July 1991, effective from 30 December 1991 and updated by a 2013 Protocol, sets out when payments for education and training will be exempt from Australian tax. This matters for more than 120,000 Indian students across Sydney, Melbourne, Brisbane, and Perth.

What Article 20 says — the core rule

At the center is a simple rule that carries big consequences for living budgets: when a student who was an Indian resident immediately before arriving is in Australia solely for study or training, payments for maintenance, education, or training that come from sources outside Australia are exempt from Australian tax for a reasonable period.

That language in Article 20 is now the go-to reference for:

• Scholarships remitted from India
• Indian government fellowships
• Training allowances paid by Indian employers to apprentices on short-term programs

Practical effect on the ground

The treaty language may sound technical, but the effect is clear:

• If the money comes from India, and the student is here on a study or training pathway, the payment is typically not taxed in Australia as income.
• Because the India–Australia DTAA aims to prevent double taxation, this relief generally removes the risk that the same scholarship is taxed both in Australia and in India.
• Many students have been relieved to discover they usually do not need to file complex returns in both countries for the same funds.

Important: The exemption is not a blanket pass. The phrase “for a reasonable period” is consequential and is interpreted in context.

Limits and conditions

• Reasonable period: In most cases, aligns with the normal length of the course or training (e.g., 3–5 years for many degrees; much shorter for apprenticeships).
• Purpose test: Payments must be tied to education or training, not for commercial work.
• Employment income: Once a student moves into paid employment in Australia under a formal contract, that income falls under Australian domestic tax rules and is taxed here.

Mixed roles and university payments

Universities often use mixed funding models:

• Many postgraduate students receive research assistant or teaching assistant stipends tied to degree progress.
  • If stipends are clearly part of academic training and not wages, Article 20 may still apply.
• If a student is hired under an employment contract with tax withheld, that portion is taxable in Australia.
  • The student may later claim a foreign tax credit in India under Article 23 of the treaty if required.

Record-keeping: what students should keep

According to analysis by VisaVerge.com, students should:

• Trace the source and purpose of each payment and keep them separated in records.
• Retain:
  • Visa grant notice
  • Proof of Indian residence before departure (passport, Indian tax records)
  • Scholarship or sponsorship letter naming the payer
  • Bank remittance proofs showing funds came from outside Australia
• A Tax Residency Certificate (TRC) from India can help if the Australian Taxation Office (ATO) asks for clarification.

This paperwork is important when claiming treaty relief or explaining why a payment should not be assessed as Australian income.

Common categories and typical treatments

• Government-funded scholars:
  • Scholarships from Indian bodies (e.g., ICCR, DST, UGC) usually come from India and are tied to study, so they typically fall within the treaty’s protection.
• Self-funded students:
  • Regular family remittances from India used for maintenance and education are generally treated the same way.
• Corporate trainees and business apprentices:
  • Article 20 covers business apprentices whose payments are for training and come from outside Australia.
  • If an Australian host pays a top-up or casual wage, only the foreign-sourced training allowance is claimable under Article 20 in mixed cases.

Example case

Aditi, a student from Pune, receives a ₹10 lakh Government of India scholarship to study at the University of Melbourne. The award is:

• Paid from India into her Australian bank account
• Backed by a letter stating the funds support maintenance and education

Under Article 20, that scholarship is exempt from Australian tax because it comes from outside Australia and is clearly for study. It is also not taxed again in India, so she avoids double taxation and can plan her budget around the full amount.

India-side considerations

Treatment in India depends on the student’s residential status under Indian tax law:

• If a student remains a Non-Resident Indian (NRI) while studying in Australia, foreign income is generally not taxable in India.
• If a student returns and becomes Resident but Not Ordinarily Resident (RNOR), foreign-source scholarship income often remains outside Indian tax.

Both treaty rules and Indian domestic law typically limit the chance of facing two tax bills on the same educational allowance.

PhD candidates and withholding nuances

University-funded PhD candidates face a particular nuance:

• Some universities describe research stipends as scholarships and do not withhold tax, especially when tied to academic milestones.
• Others place students on contracts for teaching or lab duties with tax withheld.
• The presence of withholding does not decide the treaty question by itself, but it often signals the payment’s nature.

Advisers recommend aligning the description of the payment in documents with its actual purpose and keeping a separate account for wages earned in Australia to avoid mixing funds.

Official guidance and resources

• Officials have not announced new changes to the India–Australia DTAA this season.
• The Australian Taxation Office (ATO) continues to point students and employers to the treaty text for cross-border payment questions.
• The ATO’s public guidance on international tax agreements is the main reference for taxpayers checking treaty applicability.

For general reference, readers can consult the ATO’s page on tax treaties: Australian Taxation Office – Tax treaties.

Compliance and everyday practice

• Students taking part-time roles during allowed hours must:
  • Declare Australian wage income
  • Apply for a Tax File Number (TFN)
  • File an Australian tax return when required
• Keep employment income and educational allowances in separate bank trails to show which payments qualify under Article 20.
• Some students ask sponsors in India to include the words “maintenance and education allowance” on remittance notes to strengthen the paper trail.

Guidance for employers hosting interns

• If an Australian company pays the intern for local work, that pay is taxable in Australia.
• If a sponsor in India pays the trainee a training allowance from India for a structured program, that allowance may be exempt in Australia under Article 20 — provided the trainee is present solely for training and meets the residency test immediately before arrival.
• Companies that mix models should keep clean records and avoid reimbursing training allowances through Australian payroll to prevent blurring the source.

Broader context and human impact

• Article 20 is part of a broader framework covering professors, entertainers, business profits, and methods for relieving double taxation on other income types.
• The student clause stands out because it supports mobility without penalising the support that makes study abroad possible for many.
• For families budgeting carefully, avoiding an unexpected tax bill can mean keeping funds for housing, textbooks, or travel home.
• The clause also reduces confusion in admissions and allows sponsors to present offers with clearer tax footing if they provide supporting letters showing the foreign source and educational purpose.

Key takeaway:
If your scholarship or training allowance comes from outside Australia and supports your study or training, it generally shouldn’t be taxed twice under Article 20 of the India–Australia DTAA — provided you meet the residency and purpose tests.

Practical checklist for students (summary)

1. Keep copies of:
   • Visa grant notice (Subclass 500 or relevant training visa)
   • Passport and Indian tax records showing pre-departure residence
   • Scholarship/sponsorship letters naming payer and purpose
   • Bank remittance proofs
   • Tax Residency Certificate (if available)
2. Separate accounts for:
   • Educational allowances and maintenance payments
   • Australian wage income
3. When in doubt:
   • Check the ATO guidance and the treaty text
   • Ask sponsors to describe payments as “maintenance and education allowance” where appropriate
   • Consult a tax adviser for case-by-case checks

The India–Australia DTAA remains a quiet backbone for the movement of students, apprentices, and researchers. With Article 20 in place, the promise is straightforward: if your scholarship or training allowance comes from outside Australia and supports your study or training, it shouldn’t be taxed twice. For many balancing rent, lab fees, and tight timetables, that clarity can make the difference between scraping by and finishing strong.